Executive Chairman’s Statement

Executive Chairman’s Statement

On behalf of the Board of Directors of Mega First Corporation Berhad, I hereby present to you our annual report and audited financial statements for the financial year ended 31 December 2018.

Overview of the Group’s Financial Performance

For the financial year ended 2018, the Group recorded a 6.6% increase in profit before tax from continuing operations to RM197.4 million (2017: RM185.3 million) on a 4.9% increase in revenue to RM874.1 million (2017: RM833.1 million). The increase in pre-tax profit was mainly attributable to an increase in construction profit from the Don Sahong Hydropower Project to RM178.1 million (2017: RM172.6 million) and lower ESOS expenses, partially offset by marginally lower year-on-year PBT contribution from the Resources and Property Divisions.

Net profit however registered a 12.7% decline to RM145.8 million (2017: RM167.0 million). This was primarily due to the expiry of the Sino-foreign Joint Venture in China on 22 October 2017 and Power Purchase Agreement in Sabah on 2 December 2017 which were not extended for commercial reasons. The two discontinued power plant operations registered a RM13.7 million loss in 2018 (mainly due to one-off impairment charges), compared to a profit of RM15.0 million in 2017.

I am pleased to say that despite the loss of income generation from the two discontinued power plants and a challenging operating and economic environment, the Group managed to deliver satisfactory financial performance resulting mainly from a diversified earnings base, prudent financial management and management’s focus on operational excellence and efficiencies.

Prospects and Future Plans

Power Division

We are looking forward to the completion of the Don Sahong Hydropower Project (“Don Sahong”) in Laos PDR by the end of 2019 which is expected to bring the Group’s profits and cash flows to new heights from 2020 and onwards. Don Sahong is the Group’s first foray into the renewable energy sector and will become the main income generator for the Group in the coming years. We believe that renewable energy is the way forward and are actively exploring new strategic investment opportunities domestically as well as regionally.

Construction of Don Sahong is progressing according to schedule and has reached approximately 85% physical completion at the time of writing. Installation of the first turbine has been completed, while installation of the remaining three turbines will be completed in the coming few months. Dry test on the turbines is expected to commence shortly while wet test is expected to commence sometime in the third quarter of 2019. Construction of the switchyard, the transmission line and Ban Hat substation is now about 75% complete.

With 21% physical completion left to recognise (physical completion was 32.5% in 2018), construction revenue and profit from Don Sahong is expected to decline year-on-year in 2019 when compared to 2018. The decline in construction revenue and profit is however expected to be largely offset by test energy sales in the second half of 2019 as the four turbines are progressively being tested and commissioned.

Resources Division

The RM110 million expansion programme of the Resources Division which started in 2015 is now complete with Kiln 8 ready for commissioning in December 2018. Compared to 2015, we have in total increased kiln capacity by 1,200 tonne per day to 1,960 tonne per day at present. With the expansion, the Group now operates one of the largest lime manufacturing operations in Malaysia.

A softening of the regional economies, a slowdown in construction activities and cancellation/deferral of mega infrastructure projects in Malaysia are expected to dampen demand for lime in the domestic and export markets in 2019. Against the backdrop of a subdued market condition, management will continue to work towards expanding its customer base to compensate for potentially lower demand from existing customers.

Barring any significant fluctuation in the foreign currency exchange rates, the average selling price of lime products is expected to remain stable. Cost pressures experienced in 2018 arising mainly from rising petcoke, transportation and packaging material costs have stabilised in recent months. Nonetheless, these costs are closely tied to oil price movements and global demand for petcoke (the by-product from downstream oil refineries). Therefore, the situation could change for better or worse depending on future oil price movements and demand-supply dynamics of petcoke as burning fuel.

Property Division

Given the continuing weak property market condition in Malaysia, the Group does not intend to restart its development segment, which has been suspended since 2015. At the end of 2018, the Group has RM11 million worth of unsold property inventory. Efforts will continue to sell the remaining completed property units in 2019. Rental income from PJ8 and Greentown carparks is expected to remain stable.

Shareholder Value Creation

The Board of Directors and the management of the Group are committed to creating value for shareholders and as testament to this, the Group received an award for the Highest Returns to Shareholders Over Three Years and Highest Growth in Profit After Tax Over Three Years in the Edge Billion Ringgit Club awards in 2018 for the Utilities sector.

The Board of Directors is pleased to recommend a final tax-exempt dividend of 2 sen per ordinary share for approval of the shareholders at the forthcoming Annual General Meeting. Together with the interim dividend of 2 sen per ordinary share, the total dividend for the financial year 2018 is the same as 2017 at 4 sen per ordinary share.

Acknowledgement and Appreciation

On behalf of the Board of Directors, I would like to take this opportunity to thank the Group’s management team and employees for their hard work and dedication to the Group. Without them, the Group would not have been able to grow to what it is today and I hope that we can continue to grow the future of MFCB together.

I would also like to express my appreciation to all our bankers, customers, suppliers and business associates for their unwavering support and confidence to the Group.

To all my fellow Directors, I have enjoyed working with you in the past year and hope that we can continue to guide the Group’s strategy and management together in this coming year.

Finally, I would like to thank all our shareholders who continue to provide us with unwavering support. Your confidence motivates us to work towards growing the Group to bring it to the next level.